The more important reason being that is was the "world class leggie" in that period. He was the one to whom the likes of warne looked towards.
And another reason why Mr. Kaneria is not chosed in ODIs - he gets hit for a lot of runs...
You two are confusing "Average" with "Economy Rate". His higher "Average" (runs conceded/wicket) is only because of having to bowl more overs on subcontinental pitches. Kaneria typically bowls 30-40 overs per innings. Pakistan, in the last 8-10 years, hasn't had many spinner friendly wickets. In fact, the slow-turning wickets are the death of spinners. Despite this, his "Strike Rate" (number of balls bowled per wicket), is the same as Saqlain's and much better than Abdul Qadir's. His "Economy Rate" (runs conceded/over), which is a true measure of a bowler's miserliness, is better than Waqar Younis's.
Another point to note is that Shane Warne is a legend, there's no use comparing anyone with Warne. Having said this, however in the 2004/05 tour of Australia, Kaneria went head-to-head with Warne and got MORE WICKETS than Warne. This takes even more significance because Australia's batting lineup was much much stronger than Pakistan's.
So I wouldn't discount Kaneria's achievement. Being the fourth highest all time wicket taker is no mean accomplishment.. considering the three bowlers above him on the list are Wasim Akram, Waqar Younis, and Imran Khan.